Friday, 17 May 2013

the internet economy Part I; a new gold rush, economic production in an information economy

 [This is a re-post (originally posted on 4 Nov 2012), deleted the original posts by mistake]

“Sticks and stones will break my bones but words will never hurt me”.  They do now!  Just ask any lawmakers exposed in Wikileaks!

We now know that the internet is playing a major role in our life, unlike conjecture in the early 90’s before commercialisation began.    Today, we ponder in terms of an internet economy, not eCommerce per se but an economy where information becomes a commodity.  This blog article (in four parts) contemplates its effects.

You must have noticed that Facebook, Wikipedia and Amazon operate in a somewhat different sphere from today’s businesses and their online initiatives.  They use business logic that is antithesis to existing business models.  If you have studied how iconic internet companies work including these four, you’ll notice that they apply methods, for lack of a better phrase, what I call internet rules, to their business.  Delve deeper and you may observe that the rules are derived from the unique internet business model which itself evolved from a culture that pervades the internet.  Google and Facebook in particular singularly cultivate the culture of the internet into their strategy.  They seem to innately understand the strategic significance.   This blog is about the internet business model that gives directions to the internet economy.

This and the following five blog articles will consider the information economy.  Then we will look into the ‘rules’, business model, systems and culture that can be universally applied.  And in later blogs, how they could apply to and affect businesses, organisations and society at large.

We use Google, LinkedIn and perhaps NationBuilder.  They are all information-based businesses and depend on user-generated content through crowdsourcing, a unique scheme evolved from the internet.  If Henry Ford’s car assembly lines created the modern factory, crowdsourcing is the equivalent, creating an information age factory, using data as raw material, manufacturing informational and quasi-informational products.  Since most crowdsourced content is free, ‘free’ now has value.  The latter, a dichotomy to the traditionalists, needs to be understood and will be a subject of a future piece.

The generation of content in the internet first became evident with newsgroups (circa 1979) intensifying with blogs (1994).  And then it accelerated with the introduction of the web (1993).  In 1999 there were 23 blogs on the internet and by the middle of 2006, there were 50 million blogs according to Technorati’s State of the Blogosphere report.  Free email services like Hotmail added to it but they had no value then.  Ditto gopher, the early ‘search’.  The bubble (1996 to 2000) started the monetisation process.  Whilst it mostly failed, it was not due to a fundamentally flawed model but of timing.  After the blood letting, many gleefully said their eulogy to internet companies but those were simply formative years, what I call Internet 1.0.  If you were a student of history as I am, you would know that many imminent industries starts with a financial crash during phase 1.0 of their development.  You see it in the car industry, railways, electricity that in fact alludes to an industry in the making.  You know it was going to be the next big thing!  Tulip was an exception.  It was also the start of the commoditisation of information.

Yahoo subsequently succeeded in first commoditising then monetising information with Google accelerating it.  Facebook looks likely to take over the baton to hasten it even further.  And Pinterest, the latest darling will not cross the finishing line, the baton will be passed to others.  (A future blog article discusses the internet cycle, now at 30%.)  The current internet start-up fervour (in spite of the Facebook listing fiasco which I blame mostly on the financial industry, not Facebook per se, and thus will continue) is mostly around social media and information and indeed there is froth.  Whether this becomes a bubble, some, a smaller percentage will fail while others, a larger percentage, continue on the fast lane, flipping the 80/20 pareto principle between Internet 1.0 and internet 2.0 phases.  Internet 2.0 phase is mainstream, not the cowboy frontier of the earlier one.  Sure, there will be start-ups with half baked schemes but this is mostly the natural progression of business now.  It will be up to the investor to figure out the bit that’s not but it’ll be unlike 1.0 when they treated start-ups as chips in a casino.  We have digressed but we are simply going through the cycle, where commoditisation of information is an early cause.  This leads us to the subject of economics (in Part II).

©Chen Thet Ngian, (2012, 2013).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chen Thet Ngian and with appropriate and specific direction to the original content.